ALEXANDRIA, Va. -- The fallout from US Airways' second bankruptcy reverberated up and down the East Coast yesterday, with a Virginia bankruptcy judge approving the airline's use of a government loan to pay for operations.

Martha Rial, Post-Gazette A US Airways jet burns off fuel before being serviced at one of US Airways maintenance hangars yesterday at Pittsburgh International Airport. Click photo for larger image. Online graphic See a graphic that shows a list of US Airways' top creditors. Related coverage Analysis: Sometimes, low fares are painful Airline's workers: 'A public smile with your private tears' Other carriers not expected to rush in here Region's tourism sees good, bad Some fliers already easing into a post-US Airways life Travel agents surprised by lack of frantic calls

The company hailed its first full day in Chapter 11 bankruptcy as "near flawless," citing smooth, uninterrupted service across the United States.

Speaking to reporters after the hearing, US Airways Chief Executive Officer Bruce Lakefield said, "We have a lot of hard work to do and a lot of tough decisions. We'll be a damn good airline again."

But there is rough flying ahead for the nation's seventh-largest carrier -- challenges that were on display yesterday at a U.S. Bankruptcy Court in Alexandria.

US Airways made clear during a daylong hearing that it intends to ask for difficult cuts in pensions and retiree benefits -- a divisive issue in the last bankruptcy -- and may decide not to make payments on any pension commitments made before it filed for bankruptcy Sunday.

The Arlington, Va., company was scheduled to make a payment of $110 million tomorrow to the pension funds of flight attendants, bag handlers and machinists but indicated that won't happen. It also suggested in a filing that it may ask to "freeze or terminate" the pension plans, saying it may not be able to meet those obligations and survive.

A lawyer for the Pension Benefit Guaranty Corp., the federal office that monitors pension plans, said tomorrow's payment and another due Oct. 14 are mandated by law and asked for a hearing on Sept. 27. U.S. Bankruptcy Judge Stephen S. Mitchell -- the same judge in US Airways' previous Chapter 11 filing two years ago -- scheduled a hearing on the matter for Oct. 7.

Despite skepticism from financial analysts and on Wall Street, which sent its stock down 44 cents, or 30 percent, to $1.02, US Airways insisted to Mitchell that it will again be a "vibrant, effective competitor in the marketplace," able to compete with the low-cost airlines it admittedly underestimated.

Lakefield, saying everything in the case was complicated, insisted that the airline will operate "as usual" and pledged the company's employees will "do the best job we can do."

Jack Stephan, a pilot and spokesman for the airline's 3,257 pilots, told reporters that the pilots were disappointed to be back in bankruptcy court, but he said that the airline's reorganization plan had a chance to work.

He said pilots understand the industry is under pressure from passengers who are unwilling to pay what it costs for a seat on a traditional airline.

The pilots have no new talks scheduled with the airline, though the company may meet today or tomorrow with the flight attendants union and is slated to talk tomorrow with dispatch workers, a spokesman said.

Kevin Wolf, Associated Press US Airways Chief Executive Officer Bruce Lakefield promised yesterday that the airline would emerge from Chapter 11 bankruptcy protection. Click photo for larger image.

Despite Lakefield's assertion the bankruptcy case was complicated, the company's lead lawyer, Brian P. Leitch of Arnold & Porter, said that while the bad news is that the company is back in bankruptcy, "the good news is that this is not a complex problem to solve."

He said the airline intends to "take a big whack" out of costs, reduce hubs and fly point-to-point, with faster turn-around times for its planes. He said that unlike its domestic routes, US Airways' European and Caribbean routes are operating successfully.

Leitch said the current management team has "no intention" of presiding over a liquidation of the airline and its assets.

The company has 3,300 planes and flies to 182 destinations but is certain to reduce both in coming months. Mitchell gave the airline permission to go ahead with revoking leases on a Boeing 737 and 24 various types of turbo-prop planes, although the owners of the aircraft have 15 days to object.

Many US Airways employees yesterday reacted with wearied resignation and anger. The International Association of Machinists and Aerospace Workers was perhaps the most critical, hammering the airline for fostering "animosity and distrust" and refusing to look beyond labor costs as a solution to its money problems.

Airline chairman David Bronner told The Associated Press that he may invest more in the company if it can get its labor costs down during bankruptcy. Bronner invested $240 million in the airline through the Retirement Systems of Alabama, which he runs, and could lose the state pension fund's investment if the carrier does not re-emerge from bankruptcy.

But the company also warned that hopes for any significant outside financing to help with the restructuring aren't good. "If US Airways is to survive, it must do the necessary work itself, and quickly," the airline said. "There is no white knight waiting in the wings to purchase a high cost airline that cannot compete in today's environment."

There are still about $750 million in federal loan guarantees available, which the company intends to tap "a portion of" to help pay for operational expenses. The airline is dipping into its cash reserves at a rate of more than $3 million a day. Most of its assets have been pledged as collateral on loans, making it ripe for liquidation if the lenders give up hope.

In its lengthy filing, US Airways said that it has $1.45 billion in cash and assets totaling $8.8 billion, including $2.5 billion in "good will," an accounting term that attempts to value intangible assets. It also said it had liabilities of $8.7 billion, in addition to $2.6 billion in commitments to buy new airplanes and $4.9 billion worth of leases for current planes.

The issue that will determine US Airways' survival is how long the cash Mitchell made available yesterday will last as the beleaguered carrier enters one of the slowest periods of the year. The seasonal handicap could be compounded if passengers flee to competing carriers rather than risk being grounded by US Airways' problems.

Mitchell permitted US Airways to finance operations with a portion of the $750.4 million in cash it has on hand from a $1 billion government-guaranteed loan. The airline owes $717.6 million on the loan and lenders are aiming to preserve as much of that as possible by keeping close guard over the airline's cash and other assets.

"It's important to realize the creditors really hold the cards," said William Warlick, an airline analyst with Fitch Ratings.

Lenders had agreed to amended terms of the government-guaranteed loan on three occasions this year in order to give the airline more flexibility. They have offered to do so again by giving the company access to more of the $750.4 million in cash under a week-to-week agreement that runs through mid-October.

US Airways said a substantial portion of the $750.4 million cash will not be used. Warlick said the company expects the cash available to it will last through January, "but some of that depends on how dramatic the revenue impact is and if we get fuel cost increases."

Virtually all of US Airways aircraft, slots at airports and other assets are pledged to repay the loan, leaving the airline no flexibility to seek financing elsewhere.

That might change if the airline gets the $800 million in concessions from labor it is seeking, either by renegotiating labor agreements or getting Mitchell's approval to impose revised contract terms.

"US Airways enters Chapter 11 with relatively limited cash available, and will have to move quickly to secure cost-saving labor agreements," said Philip Baggaley, a credit analyst with Standard & Poor's in New York.

US Airways admitted its plan to transform from a lumbering, old line carrier into a more nimble, low-cost carrier is "audacious." One long-time industry observer questioned whether the carrier can pull it off.

"I'm pretty pessimistic whether US Airways can morph into a low-cost carrier the way America West did. The times are just different," said Richard Gritta, a University of Portland finance professor.

Gritta said the airline's structural problems are compounded by the seasonal downturn in traffic, concerns about terrorism and other factors.

"It is such a fragile environment out there," he said. "It could get spooky pretty fast if fuel costs go up or interest rates go up."